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Operational Risk Management
Background Development
The history of Operational risk is not very old, its genesis lies in the
banking system, before 1999 when Basel Committee took charge of
defining the operational risk, it was considered as "Other Risk" than credit
and market risk.
In 1999 the Basel Committee started first defining the operational risk
because there was a need to put a capital charge exclusively for others
risks which were not credit or market risk
In 2001 the BaselCommittee for the first time defined "other risk" as
operational risk, the building block of operational risk was "Cause" of
potential loss events.
The operational risk was defined as a risk of loss resulting from
inadequate or failed internal processes, people,and system or from
external events.This definition included legal risk but excluded strategic
and reputational risk.
The legal risk was falling under the operational risk category because of
its indirect cause resulting from failing due to people, process, system or
external events.
90 | Risk Management in Current Scenario
